The interest you’ll pay on everything from home loans to credit cards is now lower than it’s been in a decade.
The Federal Reserve cut interest rates for the first time since the financial crisis in 2008.
Rates will now hover between two percent and two and a quarter percent.
Brad Byrd: The interest you’ll pay on everything from home loans to credit cards is now lower than it’s been in a decade. The Federal Reserve cut interest rates for the first time since the financial crisis in 2008. Rates will now hover between two percent and two and a quarter percent. And joining me now is Matt Finn, who is Old National Bank’s Chief Economist. And Matt thanks a lot for joining us today. Well, the fed lowered this rate a quarter of a percent – let’s put this in human terms. What does this mean for everyday people who are trying to buy a house, or finance a car or apply for credit?
Matt Finn: Well, it means two things; it means the rates on loans will probably drop a bit and it also means the rate on your bank deposit unfortunately will also drop perhaps just a bit. Because it affects both the borrowing rate and the lending rate.
Brad Byrd: And the meltdown was in 07’ but the major impact was in 2008. Why did the fed hold off so long to make a cut like this?
Matt Finn: Well, the fed held rates at 0 for quite a while, but they have raised rates 9 times. Starting in 2015 when they went off on 0 and now the fed’s rate got all the way to 2.5% and now, they’ve lowered that target rate. So, this is their first rate cut since the feds raised rates.
Brad Byrd: And this is really an impact on everyone who borrows. Millions upon millions of people do carry credit card debt, mortgage debt, car debt – let’s just say you closed on your house – just about two weeks ago – and you find out the interest rate is coming down, can you refinance or are you stuck where you are?
Matt Finn: Well, it’s probably not a good idea to refinance after just a couple of weeks, but yes, rates do move around a bit and consumers, I think, in general, are aware of this. They lock in rates – the fed, or at least the market, telegraphed that the fed was likely to lower rates this time around. And they’re likely to lower rates one more time before the end of the year. It seems to be the consensus. So, again, if you’re buying a house or something like that, you may not want to wait for that last quarter of a point, but if it’s close, you may decide to do that.
Brad Byrd: But some people may say it’s just a quarter of a percent – now, if you’re talking a mortgage over a 30-year time, that could be a lot of money that we’re talking about here.
Matt Finn: Conceivably, but again, the utility you get of living in your home during that time is worth something as well. I don’t think most consumers should wait for just one quarter of a point. But consumers have been doing this for decades. When rates were rising in the late 70s and 80s, consumers were buying homes still. I think pretty much everyone refinanced back in the early 2000s, lots of people refinanced their homes for lower rates.
Brad Byrd: Do you see a reversal on this, say in the next two years? What do you see happening in the next year or two?
Matt Finn: The fed wants to stimulate the economy, or at least be accommodative, they don’t want to choke off economic growth, so they’ve lowered this interest rate, they were very clear to not say they were going to do another one. What they said is they were going to monitor economic conditions, and if we need to lower rates again, they would do so. Economists have been waiting for inflation to uptick above two percent, and it hasn’t happened so far. If inflation does start to tick up, I think the fed will step in and raise rates up perhaps.
Brad Byrd: Ok, Matt Finn from ONB thanks a lot for coming in and talking about this with us.
Matt Finn: My pleasure.
(This story was originally published on August 1, 2019)